Summary of WP/94/144: “North-South R&D Spillovers”

Authors of Working Papers are normally staff members of the Fund or consultants, although on occasion outside authors may collaborate with a staff member in writing a paper. The views expressed in the Working Papers or their summaries are, however, those of the authors and should not necessarily be interpreted as representing the views of the Fund. Copies of individual Working Papers and information on subscriptions to the annual series of Working Papers may be obtained from IMF Publication Services, International Monetary Fund, 700 19th Street, Washington, D.C. 20431. Telephone: (202) 623-7430 Telefax: (202) 623-7201 This compilation of summaries of Working Papers released during July-December 1994 is being issued as a part of the Working Paper series. It is designed to provide the reader with an overview of the research work performed by the staff during the period.

Abstract

Authors of Working Papers are normally staff members of the Fund or consultants, although on occasion outside authors may collaborate with a staff member in writing a paper. The views expressed in the Working Papers or their summaries are, however, those of the authors and should not necessarily be interpreted as representing the views of the Fund. Copies of individual Working Papers and information on subscriptions to the annual series of Working Papers may be obtained from IMF Publication Services, International Monetary Fund, 700 19th Street, Washington, D.C. 20431. Telephone: (202) 623-7430 Telefax: (202) 623-7201 This compilation of summaries of Working Papers released during July-December 1994 is being issued as a part of the Working Paper series. It is designed to provide the reader with an overview of the research work performed by the staff during the period.

This paper examines the extent to which less developed countries that hardly invest in research and development themselves benefit from the R&D that is performed in the industrial countries. Recent theoretical arguments suggest that international trade plays an important role as a transmission channel for R&D spillovers to the less developed countries. This study provides quantitative estimates of these effects for a group of 77 developing countries based on equations that relate a developing country’s overall productivity to the foreign R&D capital stock, the share of imports from industrial countries in the developing country’s GDP, and the secondary school enrollment rate. The foreign R&D capital stock consists of a weighted average of the domestic R&D capital stocks of 22 industrial countries with which the developing country trades, using bilateral import shares with the industrial countries as weights.

The results imply that a developing country’s total factor productivity is larger the greater is its foreign R&D capital stock, the more open it is to trade with the industrial countries, and the more educated is its labor force. In addition, a developing country has higher productivity when its trade is more biased towards industrial countries that have large cumulative experiences in R&D. A developing country with a larger import share in GDP or a higher secondary school enrollment rate is also more productive. In the preferred specification, the foreign R&D capital stock only affects productivity when interacted with the import share. This implies that a country that is more open to trade derives a larger marginal benefit from foreign R&D, and a country that has a larger foreign R&D capital stock gains more productivity from a marginal percentage increase in imports.

The estimated elasticities suggest that the R&D spillovers from the North to the South are significant and substantial. The implied rates of return--the rise in real GDP of the developing countries resulting from a 100 U.S. dollar increase in the domestic R&D capital stock of an industrial country--are large. They suggest, for example, that an addition of 100 dollars to either the U.S. or Japanese domestic R&D capital stock raises total GDP in the 77 developing countries as a group by almost 25 dollars. The paper concludes that R&D spillovers from the industrial countries in the North to the less developed countries in the South are substantial.

Working Paper Summaries (WP/94/77 - WP/94/147)
Author: International Monetary Fund